IPO Option Overhang Stands at Dotcom Era
Levels

November 18, 2003 (PLANSPONSOR.com) - Even in the
face of looming stock option expensing, stock option overhang
levels in companies launching an initial public offering
(IPO) are comparable to those in companies that went public
in the mid- to late-1990's.

The medianpost-IPO stock option overhang level –
the sum of shares reserved for outstanding grants
plus shares available for future grants as a percentage of
common shares outstanding – stood at 19.5% among the 40
companies studied by Presidio Pay Advisors.
This is down from a 26.8% overhang level the sample
reported pre-IPO, with post-IPO levels more consistent with
overhang levels noted by established public companies
(See
Tech Option Grants and Overhang Levels
Down
).

Leading the trend were technology companies, who
reported post-IPO overhang levels of 21.8%, a number
Presidio says is consistent with overhang levels of
theearly years of the “dotcom” phenomenon, when median
total overhang was approximately 19-20%.
Pre-IPO though, overhang levels were an astronomical
35.0% for technology companies.

Also consistent with more established companies was
theannual “run-rates” – the number of options granted in
a year less any cancellations divided by a company’s total
shares outstanding.
The median average annual run-rate for companies was
3.2% for the three years prior to IPO.

However, in the months immediately preceding the
public offering of a companies stock, companies granted a
median of 1.8% of shares outstanding.
On an annualized basis, companies are then granting
more options prior to going public than the three-year
annual average; a trend Presidio attributes to companies
ensuring employees will be able to benefit from the IPO’s
success.

Presidio’s calculations for stock option overhang
levels among technology companies are below Watson Wyatt’s
earlier calculation of 24.9% (SeeOption Overhang Continues To Increase).
Watson Wyatt attributes the increase in overhang
levels to the large number of unexercised options and the
trend for technology to compensate its employees more with
stock options than other industries.